What happens in Vegas, stays in Vegas, runs Sin City's advertising slogan. Now a museum hopes to make sure that what happened in Las Vegas not only stays there but is displayed inside a glass case.

The as yet unnamed mobster museum aims to tell the story of the ever-booming city's murky past, before it became today's glitzy mega-casino and entertainment mecca in the middle of the Mojave desert, Nevada.

While many of Las Vegas's 36 million annual visitors are drawn by names such as Celine and Elton, more colourful characters with monikers such as Tony the Ant, Lefty and Bugsy helped turn a sleepy town into the gambling capital of America.

"Let's be brutally honest, warts and all. This is more than legend. It's fact," said Las Vegas's mayor Oscar Goodman, himself a colourful character who has made the most of the city's heritage, even appearing in Martin Scorsese's cinematic homage to its past, Casino.

Legend will tell that the modern Vegas took root when Benjamin "Bugsy" Siegel opened the $6m Flamingo hotel in 1946 on the then fledgling Las Vegas Strip. But the Pink Flamingo Hotel & Casino was a flop, despite Siegel's money and that of his east coast mob friends. Although stars of the day such as Clark Gable and Joan Crawford attended the glitzy opening night the hotel brought in little revenue for its mobster backers. Within a year, Siegel's fate was decided, reputedly at a gathering of mob bosses in Cuba. Siegel, accused of skimming money from the project, was killed in his Beverly Hills home in June 1947.

Such tales will form the core of the new museum, which promises to be a historically rigorous institution.

"Despite the sort of edgy theme, this museum will be historically accurate and it will tell the true story of organised crime," Ellen Knowlton, who heads the museum, told the Associated Press. "The plan is to give people a kind of gritty taste of what it would have been like to be not only a person involved or affiliated with organised crime, but also what it would have been like to be in law enforcement."

In a sign that perhaps the good guys put one over on the bad guys, the woman in charge of presenting the city's history is Ellen Knowlton, who retired in 2006 as FBI agent in charge at Las Vegas.

But not everyone is happy that the city plans to commemorate its mobster past. Local opponents of the scheme argued that the museum should offer a broader focus, including the stories of showgirls and the more glamorous aspects of the past of the heart of hedonism.

But backers argue that the mob goes to the core of the city.

"Whether it's running the casinos in Las Vegas, or controlling cigarette sales or numbers or trash collection in any city, organised crime is part of the American culture," said David Barrie, who will design the museum's exhibits. "Everybody has a mob story or a brush with the mob world. Or they at least say they do."

The museum will itself inhabit a small piece of Las Vegas history - a former post office and federal government building that, at its opening in 1933, was the centrepiece of a town of just 5,100 residents.